1. The Bill I will describe is the result of seven months of work and deliberations for elected Members and FIG officers. The budget strategy for the 2013/14 year was approved in November 2012 and departments then set about the hours of work it takes to prepare each individual submission.

THE APPROPRIATION BILL 2013

Mr Speaker, Honourable Members…

1. The Bill I will describe is the
result of seven months of work and deliberations for elected Members and FIG
officers. The budget strategy for the 2013/14 year was approved in November
2012 and departments then set about the hours of work it takes to prepare each
individual submission. After discussion with Treasury and the Corporate
Management Team budgets were then submitted to the Budget Select Committee
which was established at the last Assembly meeting in February.

2. The purpose of the Bill put
before you today is to authorise the appropriation of monies from the
Consolidated Fund for the next financial year. The items have been included
after consideration of the Select Committee on the Estimates (which I will
refer to throughout as the Budget Select Committee).

3. As last year, the 2013/14
budget has been put together in a very different climate than previous years.
The economy has continued to perform well during the year in all sectors. In
particular the Falklands have been fortunate to benefit from on-going oil
exploration in the Islands and the third consecutive successful Illex year.

4. The operating surplus projected
for the current financial year in May 2012 was £2.6M. This projection made
certain assumptions about revenues in the year;

Firstly, based on the exploration
anticipated at the time, that £4.5M would be received from oil exploration, and
Secondly the method for calculating Illex was changed to the five year average
resulting in £4M of Illex revenues being included. The current projections for the
2012/13 financial year are for £10M of taxation receipts from the oil and gas
industry and £10.2M from Illex. The increase on Illex shows once again how
volatile this revenue stream is for FIG, this time in our favour unlike some
recent years where no, or minimal, revenues have been received. The tax
variance has arisen due to the extended period of exploration. After these
increases a surplus in excess of £15M is now anticipated for the current
financial year. FIG are also anticipating a considerable capital gains taxation
receipt to be received later this month which is not currently included in
these figures.

5. As I mentioned in the
presentation of the previous Bill some of this surplus has been used to
strengthen the Retirement Pension Fund and Pensions (Old Scheme) Fund following
the recent actuarial reviews.

6. The combination of these
positive revenues has once again led to a significant increase in Government
balances with a projected 3½ years’ departmental spend that can be funded from
balances. This means that the long standing policy of 2.5-3 times departmental
spend has been more than met. This has allowed the Budget Select Committee some
flexibility in setting the 2013/14 budget. However, despite this the Budget
Select Committee is conscious that oil development is not yet certain and
therefore in this budget has sought to balance the calls for increasing
government spending and volatile revenues with that of prudence and longer term
sustainability of public funds.

7. The Budget Select Committee has
therefore considered three different areas this year. The first two are those
that have been considered in the budget cycle traditionally; the operating
budget and the capital programme. This year a third component of an “oil
budget” has been added. This has been much publicised Page 3 of 11
APPROPRIATION BILL 2013

over recent months so I shall
briefly explain the rationale behind the concept of the Oil Development
Reserve.

8. The Oil Development Reserve has
been devised so that the Budget Select Committee and Standing Finance Committee
can continue to monitor the financial management of the operating budget
without the large oil related revenues clouding the picture. These revenues and
the associated expenditure will also be monitored over the forthcoming months
through Standing Finance Committee.

9. Any revenues received and
monitored as part of the Oil Development Reserve will be paid into the
Consolidated Fund and any expenditures will be approved during the normal
budget cycle. The resulting surplus or deficit from both areas will form part
of the Consolidated Fund and budgets set now and in the future will take into
account the overall Consolidated Fund in setting expenditure, fees and charges.

10. In summary the Oil Development
Reserve is a mechanism to ensure that prudent financial management continues
within FIG whilst ensuring the increased reserves are distributed in a way
which serves the community as a whole, whether this be for oil development or
achieving another of the subsidiary objectives of the budget strategy. I will
talk about this in more detail shortly.

11. In the oil budget discussion
the Budget Select Committee has considered the revenues that may be received
through further exploration and development in the oil and gas industry and the
areas where FIG envisages there will be a need to spend public funds to
encourage this work. At present no figures are included for royalties or for
one-off tax receipts relating to farm-ins between oil companies. These are
outside the control of FIG and cannot be projected with any certainty.

12. By considering the areas
separately the Budget Select Committee was able to review the underlying
operating budget that will be needed to run government services irrespective of
the progression of the oil and gas industry.

13. Increasing pressures in
prices, wage bills and expectations for service levels has unfortunately not
allowed for a balanced recurring operating budget (excluding oil) to be
presented to the House today. The Budget Select Committee was mindful that
whilst still not certain the oil industry has progressed since last year and
therefore did not wish to consider large cuts to service, particularly
considering the increased revenues received in recent years.

14. The budget strategy approved
by Executive Council therefore takes this into account by continuing with the
spirit of a balanced operating budget but accepting the use of some element of
the increased balances achieved in recent years and projected for the future.
Therefore the targets for this year’s budget are based around the use of oil
exploration revenues equal to the same expenditure as last year in real terms.

15. The operating budget proposed
today meets this target in four of the five years of the Medium Term Financial
Plan. Over the five year period the target is exceeded by £7.5M.

16. The “oil budget” is also
included in the amalgamated appropriation bill and the related Capital
Equalisation Order. The revenues (again, excluding capital gains) projected for
2013/14 are £3.8M and the expenditure £6.8M, £1.9M of which relate to operating
budgets, £3M to capital projects and £1.9M to Fund Transfers.

17. The Appropriation Bill I am
presenting to the House this morning therefore includes a further section than
usual. As in previous years the bill details departmental expenditure. This
year this is £43.7M compared to £40.5M last year, an increase of just under 5%.
The Bill also includes Transfer Payments of £7.2M resulting in operating
expenditure before Fund Transfers of £50.9M. Transfers to Special Funds are an
additional £4.3M. However, a new line relating to Oil Development is also
included totalling £6.8M. The total appropriation is therefore £60.9M. The breakdown
between departments is included in the Schedule to the Bill. In addition to the
appropriation the budget also includes internal charges of £1.1M resulting in
total expenditure of £62M.

18. Transfer Payments have
increased by £2.8M compared to last year. Included in the transfer budget of
£7.2M are investments of £3.5M to encourage economic development in the form of
subventions for rural development, shipping links, tourism development and
FIDC.

19. Fund Transfers include
transfers to the Pensions (Old) Scheme, Retirement Pensions and Capital
Equalisation Funds to strengthen Government Funds and fund infrastructure
development through the Capital Programme. These are supplemented further by
the additional transfers made available from increased oil revenues.

20. Operating revenues of £51.5M
more than cover the departmental and transfer payment budgets of £50.9M.
Including transfers to special funds 89% of expenditure is supported by the
total revenue (including oil) of £55.2M. Page 6 of 11 APPROPRIATION BILL 2013

21. The net capital programme for
the current financial year totals £18.4M with a further £12M projected for
2013/14. The net five year programme is £39.8M and this will be financed from
the capital equalisation fund. The majority of these schemes do not directly
relate to oil development and a further £39.8M is anticipated over the same
period.

22. Moving on to the detailed
fees, charges and allowances proposed for the operating budget…

23. To start, for a number of
years FIG have had a policy of increasing fees by an inflationary element
unless the user pays policy is more relevant. RPI at the end of March was 3.7%
and an inflationary increase of 3% is proposed in the following areas: Training
Centre course fees, Town Hall charges, agricultural fees, Attorney Generals
Chamber’s fees, Registry fees, Civil Aviation fees, immigration permits,
applications and visas, harbour dues and customs clearance fees, car licence
fees, vehicles, firearms and drivers’ licences fees and police vetting fees. In
the case of car licence fees this will increase the fee for a Land Rover to
£120.50.

24. To allow sufficient time for
implementation within the tourist industry increases to FIGAS rates and
passenger landing fees are announced a year in advance. This year a 3% increase
in FIGAS freight rates is proposed commencing 1st July 2014. The passenger levy
was last increased in 2009 and no increase is proposed at this time therefore
for the 2014/15 tourist season the rates remain at £18 for Stanley and £6 for
Camp. To further support the Tourism Development Strategy no increase is
proposed in FIGAS fare rates for 2014/15 and the embarkation tax of £22 will
remain at this level for a fifth year in 2013/14.

25. To recognise the increasing
cost of the provision of the accommodation facilities at Stanley House it is
proposed that fees increase by 10%. Likewise the charge for funerals is
proposed to increase by 15% and for septic tank cleaning to £130.

26. Government rents are to be
increased by 5%. This increase above the inflationary rate is to recognise the
continuing gap between FIG and private sector rents. To continue to protect low
income tenants the rent and service charge rebate allowances will increase by
5% and the thresholds by 3%. To recognise that the recharges for heating in
communal buildings are not sufficient to cover the cost of heating it is
proposed to increase these charges by 23% to bring them to full cost recovery.

27. During the budget speech last
year I advised that the Budget Select Committee had equalised the quarry
aggregate sale prices between the public and private sectors and no increases
to the private sector were agreed. This year there will once again be no
increase to quarry prices for either sector.

28. Having undertaken a review of
the costs of providing services no changes in fees are recommended within the
Court, medical and dental charges (including MTO flight charge), electricity
unit rate, electricity connection charge, cemetery plots, general service
charge for domestic properties, metered water charges or waste collection
charges.

29. Postal charges are reviewed
every other year and therefore no increase is proposed this year.

30. Grazing fees have been
reviewed and these will now be equalised over the year resulting in a monthly
charge of £3/month. This is a substantial decrease on the previous winter
charge which worked out at over £22/month.

31. Moving now onto spending
measures. As the first step of a review of Pay Policy the Budget Select
Committee have proposed a 5% cost of living award for FIG staff.

32. As a consequence of this
decision Customs Services fees linked to staff pay will also be increased by
5%.

33. The same increase is proposed
for public service pensions and the standard retirement pension (including
ex-gratia pensions). This will result in a full retirement pension of £134/week
and both pension changes will come into effect on the 1st July 2013. Resident
pensioners will continue to receive a Christmas Bonus equivalent to one week’s
pension.

34. Welfare, fostering and
attendance allowances are also proposed to increase by 5% as is family
allowance. This will result in a family allowance of £66.20/month.

35. The actuaries have recently
undertaken a review of the retirement pensions fund. As a result of this review
they have made a number of recommendations to address the funding deficit in
the scheme. The first of these is an increased subsidy by FIG to make up the
deficit between the retirement pension contribution rate and the full rate
assessed as required. As highlighted in the Supplementary Appropriation Bill
earlier Standing Finance Committee has approved such a subsidy for the current
financial year and the Budget Select Committee has proposed the same for future
years.

36. The actuaries have also been
asked to look at the contribution structure for the Fund to highlight more
equitable means of funding the scheme. Until this review has been considered no
change in the local weekly pension contribution rate is proposed. Likewise no
increase of the earning limit of £180 is currently recommended.

37. As mentioned last year FIG is
conscious of the deficit in this Fund and the need to reduce the on-going cost.
As a result of this Executive Council in April approved the increase in
retirement age from 64 to 65 from the year 2020 with an increase in qualifying
age of 1 year for each of the following ten years. This will result in an
increase in retirement age to 70 by the year 2070.

38. I now return to one of the
subsidiary goals from the budget strategy; that of returning some of the
windfall to the local community. The Budget Select Committee has reviewed tax
policy and have not recommended any changes to the underlying structure or
rates. However, to recognise the general increased cost of living in the
Falklands and to reduce the burden to income taxpayers the Budget Select
Committee has recommended an increase in the income tax personal allowance of
greater than RPI to £15,000 from 1st January 2014.

39. To further reduce the taxation
burden on individuals the Budget Select Committee has also recommended the
introduction of a personal allowance for the purposes of Medical Services Tax.
Therefore from the 1st January 2014 a personal allowance of £15,000 will apply
to employees MST deductions. Self-employed individuals will also receive a
personal allowance of £15,000 on which no MST will be payable. Employer
contributions and contribution rates remain unchanged. Page

40. Last year I announced that the
Budget Select Committee had requested a review be undertaken into ways that FIG
could better assist lower earners in reducing their financial burden. The
increase in the personal allowance and creation of a personal allowance for MST
are two steps further in achieving this. In addition, in November 2012
Executive Council reviewed the schemes that are in place to provide financial
assistance in the community. As a result of this the working credit and
childcare credit scheme was created. This scheme has now been in place for five
months and the Budget Select Committee is therefore not currently considering
any changes to the scheme. However, it is proposed that the threshold for the
scheme is increased to £15,000, in line with the proposed personal allowance
from the 1st January 2014.

41. In the same review Executive
Council approved the extension of the winter fuel allowance to those receiving
Levels B and C of Attendance Allowance from this winter. The Rent rebate scheme
will also be extended to cover directly owner FIG housing outside of Stanley,
for example in Fox Bay.

42. Mr Speaker, in summary this
budget, whilst more complicated than previous years, has achieved the aims of
the Budget Select Committee. The additional revenues from oil have enabled FIG
to invest in the following ways in this budget:

 To encourage economic
development through the inclusion of funding of £3.5M in 2013/14;

 To strengthen infrastructure by
a total net capital programme over five years of £80M;

 To strengthen Government Funds
with Fund Transfers of £10M to Pension Funds and a projected 3.2 – 3.5 times
departmental spend in the Consolidated Fund;

 To return some windfalls to the
local community through increase of the personal allowance for income tax,
creation of a personal allowance for MST and no increases in a number of
government charges. and

 To promote the development of
the oil and gas industry through additional operating funding of £5M over the
next five years.

43.
Over the period of the MTFP FIG will only spend funds that it has received and
by doing this we will ensure that we are not spending beyond our means. This
Assembly has recognised that it is not prudent to spend oil, or any, revenues
before they are received and in doing so has set FIG on the road to ensuring a
sustainable economy and Government into the future.

44.
Once again this budget has only been possible due to the hard work of many
people. In particular I’d like to thank Daniel Heath, who has continued to
manage the overly complicated spread-sheets created by his predecessor and
Lydia Morrison, who joined the Treasury partway through the process but has
picked up the reins quickly. Margaret Butler has once again provided pages of
minutes during the process. My thanks also go to Tracy Floyd who has ably been
managing the Tax Office over the last 6 months in the absence of a Head of
Taxation and to everyone across the Treasury and Tax Office who has continued
to provide services whilst the rest of us have been in meetings.

45.
Mr Speaker, this concludes my budget presentation to this house and I beg to
move that the bill be read a second time.